Smartphone application processor (AP) shipments to China vendors in fourth-quarter 2018 declined 10% on quarter with system manufacturers adjusting shipment targets downward. As system manufacturers adjusted shipment targets downward by an average of more than 10%, some even by 20%, Digitimes Research expects they will become even more conservative in shipment ramp-up and will adjust inventory levels in first-quarter 2019, resulting in a drop of 25.7% in shipments on quarter.
Although the China and global smartphone markets both experienced declines in shipments in 2018, China-based vendors gained ground in overseas markets, with smartphone AP shipments to them growing. A total of 800 million smartphone processors were shipped to China vendors in 2018, up 7.5% on year.
With weak demand in their domestic market, China-based vendors including Huawei, Xiaomi, Oppo and BBK all exerted efforts toward overseas markets in 2018. Despite the impact from rising US-China trade tension, their efforts generated results in India and Eastern Europe. This was the major growth driver hoisting smartphone AP shipments to China, with Huawei making the most contribution, which directly benefited Hisilicon.
Market focus will return to the China and India markets in 2019. The smartphone market will see fiercer price and spec competitions in the under CNY1,500 (US$222.84) price range and cost-effectiveness of smartphone AP will play a crucial role influencing the competition.
According to Digitimes Research's observation, the penetration of artificial intelligence (AI) accelerators among smartphones (excluding the Apple iPhones) in China dipped temporarily in fourth-quarter 2018 as AI accelerators would add to AP manufacturing costs and selling prices but their applications on end devices had yet to bring significant benefits to consumers, affecting vendors' willingness to adopt AI accelerators. However, the penetration will likely rebound in first-quarter 2019. As to process technologies, there was an obvious transition with the ratio of the 28nm node continuing declining and the 7nm node growing significantly.
With governments and system manufacturers around the world actively engaging in 5G development, the market can expect to see phones with Qualcomm's 5G modem chips in first-quarter 2019, according to Digitimes Research's latest quarterly report about China's smartphone AP shipments.